By Huw Jones
LONDON (Reuters) - The European Union must resist lobbying pressure from banks to water down pending capital rules, the candidate for executive director of the bloc's banking watchdog told EU lawmakers on Wednesday.
Gerry Cross sought to reassure lawmakers at a confirmation hearing in the European Parliament that as second in command at the European Banking Authority (EBA) he would not be unduly influenced by the industry.
Lawmakers were angered that his predecessor Adam Farkas left to head the Association for Financial Markets in Europe (AFME) from February on conditions they saw as too lenient.
Cross, currently a senior official at the Central Bank of Ireland, once worked for the AFME, one of Europe's top financial sector lobbies with members drawn from leading lenders and asset managers.
The EU ombudsman has opened an investigation into the conditions EBA imposed on Farkas' departure to AFME.
Farkas agreed to an 18-month ban on advising AFME and its members on topics directly linked to his work during his three years at EBA, although Cross conceded that policing the conditions would be a challenge.
Cross, an EBA board member before his new appointment, said he had asked for a hardening of Farkas' departure terms.
"We must learn the lessons from the Adam Farkas affair," Cross said, offering to sign up to a two-year cooling off period if he left EBA for a private sector body.
Cross, a former senior AFME official himself, tried to underscore the tough approach he would take towards banks, saying that the last batch of capital rules to plug gaps highlighted by the financial crisis a decade ago must be implemented.
"It is important that EBA uses its influence and expertise to counter any attempt to water down the post crisis framework of reforms," Cross told parliament's economic affairs committee, which was reviewing his appointment by the EBA's board before a legislators vote on it.
Banks in Europe say the rules will significantly increase overall capital requirements despite governments saying this must not be the outcome.
Cross also warned banks it was important for them engage with regulators within the "norms of appropriate behaviour" after both sides had been too close before the financial crisis.
"We know that we can benefit from the information that we get from market participants, but we must be able to say that is as far as it goes, that's all we need, we don't need more than that," Cross said.
Europe's banking sector was still not "firing on all cylinders", with poor profitability and a fragmented market entrenched behind national boundaries, Cross said.
EBA is set to play a bigger role in combating money laundering but has already faced criticism for being too soft.
EBA's board of national regulators voted overwhelmingly in April 2019 to reject the watchdog's findings that regulators in Estonia and Denmark may have breached EU law in how they dealt with suspected money laundering at Danske Bank.
The decision caused dismay at the European Commission and prompted calls for a standalone EU anti-money laundering body.
Cross said he abstained in the Danske vote, believing more time was needed to investigate a prima facie case of "failings".
